Mortgage Protection Vs. Regular Life Insurance

by Chris Joseph

Mortgage protection insurance is specifically designed to pay off your mortgage in the event of your death.

Learning about life insurance can be about as fun and interesting as examining your navel lint. However, now that you're at the point in life where you're thinking of buying a home, it is something you need to consider purchasing. You can choose life insurance that is directly tied to your mortgage or types that provide broader protection in the event of your death.

Mortgage Protection Defined

If you die before your home is paid off, your partner could be saddled with making mortgage payments on his own without the aid of your income. Mortgage protection is specifically designed to pay off the mortgage so your partner isn't forced to sell the home or experience financial hardship. You typically take out mortgage insurance when you buy your home, although you may be able to purchase it up to 24 months after closing. The policy's death benefit (the amount paid to your partner upon your death) will decrease over time as your mortgage balance decreases.

Regular Life Insurance

"Regular" life insurance, on the other hand, can be purchased at any time. Common types of regular insurance include whole life, in which you pay premiums throughout your life while accumulating a cash fund over time. Another type is term life, which is lower in premium than whole life but does not build cash. Term life can be purchase for a specific period of time like 10 or 20 years. Mortgage protection insurance is a form of term insurance because it lasts for a specific period and does not build cash value.

Differences

The major difference between mortgage protection and regular insurance is that the latter is specifically designed to cover your mortgage in the event of your death. Unlike regular insurance, you also may be able to qualify for mortgage protection insurance without having to take a physical exam. With regular life insurance, the death benefit typically remains level throughout the life of the policy, making it more suitable for situations where additional coverage is needed in addition to paying off the mortgage.

Considerations

Depending on your circumstances, you may elect to carry mortgage protection insurance, regular insurance or both. For example, you may want to purchase mortgage protection insurance and supplement it with a term or whole life policy to cover other needs. Or, you may not wish to tie your life insurance to your mortgage and choose to purchase a more comprehensive life insurance policy. The latter will provide protection for all your insurance needs, like paying off the mortgage, creating an education fund for your kids and providing income for your partner upon your death.